That same sentiment is just as applicable to Europe too. In its recent study, Towers Watson estimated that more than €20bn per year could be generated from equity release products although the opportunity was dependent on regulators embracing it as a solution rather than imposing barriers on growth.
Although we in the UK consider ourselves a nation of homeowners, the reality is that the overall home ownership levels of 68% in this country is slightly lower than the European average of 71%. Ireland, Spain, Italy, Hungary and Sweden all have higher home ownership rates while France and German are lower.
It is always interesting to take a look across the channel to see how our European cousins are dealing with those same demographic and financial issues. Towers Watson sees the most potential demand in those countries likely to see a sharp increase in the proportion of the population aged over 65 combined with low pension replacement rates, that is, the proportion of average pension income compared to the average wage from working.
This is around 69% in the UK, above the European average of 62%. Germany (59%), Sweden (58%) and France (just 49%) have much lower pension replacement rates and are among the countries that the analysis highlights as having ‘high’ potential demand for equity release in the future.
Arguably the biggest barrier is getting the regulatory framework in place so that people can have confidence in the products and developing more knowledge about how equity release can work as a solution to people’s needs in later life. Costs are expected to fall as the size of the market and the number of participants increase, creating economies of scale.
The UK appears to be leading the pack at the moment, shrugging off the woes of the credit crunch and moving towards a more vibrant market. But risks remain, including a concern that European regulators may inadvertently discourage competition, for example, by imposing rigid capital rules as part of Solvency II proposals that could dissuade insurers from entering the market.
Insurers’ mortality expertise and need for diverse and stable long-term income flows make them natural providers of equity release, alongside banks and other financial institutions.
Towers Watson has called for a sensible treatment of equity release in the new regulations and highlighted the perfect opportunity to build a transparent and competitive market. Equity release won’t solve all the social problems facing European countries but, given the chance, it can certainly make a positive difference to millions.
Stephen Lowe is group external affairs and customer insight director at Just Retirement